Alibaba in 2017: What It's Facing, What It Might Do

Is Alibaba’s Bottom Line Vulnerable in the Near Term?

The company is investing heavily

Although Alibaba (BABA) is rapidly growing its top line, its bottom line could be a victim of its heavy investments in global expansion and its revenue stream diversification drive.

The company is pumping billions of dollars into growing its business outside its home market of China. It’s also spending heavily on a revenue diversification drive as it pursues opportunities in the digital video streaming and cloud computing markets.

With its heavy investments, Alibaba will likely struggle to see a meaningful margins improvement. It could thus have a tepid bottom line growth in the near term. Alibaba’s gross profit margin of 65.2% in 3Q17 fell 7.4% YoY (year-over-year). Its net profit margin of 43.5% fell 4.6% YoY.

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The above graph shows how Alibaba’s revenues have trended over the past few quarters.

Cloud revenue has risen 115%

Alibaba generated revenue of 53.2 billion yuan in 3Q17, a rise of 54.0%. It was supported by strong Singles Day sales that pushed up core e-commerce revenues 45.0% YoY. The company was also supported by a strong cloud performance, with revenue in that segment rising 115.0% YoY.

Defending market share

Alibaba dominates China’s e-commerce industry, but it can’t rest on its laurels since JD.com (JD) is threatening to take away its market share in the online retail space. Baidu (BIDU) and Weibo (WB) are also trying to grab their shares of the online advertising business.

In the cloud computing space, Alibaba is trying to lock Amazon (AMZN) and Microsoft (MSFT) out of the Chinese market. Amazon and Microsoft are the global cloud computing leaders, boasting rich portfolios of cloud features and services.